Experts warned yesterday that the £650m civil fraud probe may be the tip of the iceberg, as regulators dig into the shadowy dealings in the run-up to the sub-prime implosion. This could hit banking shares in the coming days.

More...

Gordon Brown called for the Financial Services Authority to start an investigation, professing 'shock' at the 'moral bankruptcy' indicated in the lawsuit. Goldman has denied any wrongdoing.

Royal Bank of Scotland, the biggest loser on the deals, is contemplating legal action, while Germany's financial regulator is seeking further details.

Tim Ambler, senior fellow at London Business School, said: 'This is very much a trial case, and Goldman will defend it with all money and lawyers they have. If the (SEC) is successful we may see others as well. And that would be a very good thing.'

Goldman is already under intense pressure because of its involvement in arranging controversial swaps for Greece in 2002 that helped mask the country's debts.

The investment bank has said it did nothing wrong, but EU Commissioner Olli Rehn said yesterday his investigation will be 'profound and thorough'.

Meanwhile, concerns that a hung parliament could emerge from next month's general election are likely to cloud sentiment. The Liberal Democrats vaulted up weekend opinion polls following leader Nick Clegg's strong performance in last week's TV debate, raising the chance of an inconclusive result, which could derail efforts to rein in Britain's prodigious national debt.

Airlines such as British Airways are also expected to remain under a cloud thanks to flying restrictions caused the by the Icelandic eruption. BA is thought to be suffering daily losses of around £25m.